THE DDIT(IT)-1(2), MUMBAI v. M/S. RELIANCE INDUSTRIES LTD, MUMBAI

ITA 2057/MUM/2008 | 2002-2003
Pronouncement Date: 23-09-2011 | Result: Dismissed

Appeal Details

RSA Number 205719914 RSA 2008
Assessee PAN AAACR5055K
Bench Mumbai
Appeal Number ITA 2057/MUM/2008
Duration Of Justice 3 year(s) 5 month(s) 29 day(s)
Appellant THE DDIT(IT)-1(2), MUMBAI
Respondent M/S. RELIANCE INDUSTRIES LTD, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 23-09-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted L
Tribunal Order Date 23-09-2011
Date Of Final Hearing 12-09-2011
Next Hearing Date 12-09-2011
Assessment Year 2002-2003
Appeal Filed On 25-03-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES L MUMBAI BEFORE S/SHRI D.K.AGARWAL (JM) AND R.K.PANDA (A.M ) ITA NO. 2046/MUM/2008 (ASSESSMENT YEAR: 2002-03) ASSISTANT DIRECTOR OF INCOME TAX (IT) -1(1) ROOM NO.117 SCINDIA HOUSE 1 ST FLOOR BALLARD ESTATE N.M.ROAD MUMBAI-400038. M/S RELIANCE INDUSTRIES LTD. (AS AGENT U/S 163 OF ANZ INVESTMENT BANK ON BEHALF OF NON-RESIDENT LENDERS AND NOTEHOLDERS) MAKER CHAMBER-IV 3 RD FLOOR 211 NARIMAN POINT MUMBAI-400021 PAN: AAACR5055K APPELLANT V/S RESPONDENT ITA NO. 2057/MUM/2008 (ASSESSMENT YEAR: 2002-03) ASSISTANT DIRECTOR OF INCOME TAX (IT) -1(2) ROOM NO.119 SCINDIA HOUSE 1 ST FLOOR BALLARD ESTATE N.M.ROAD MUMBAI-400038. M/S RELIANCE INDUSTRIES LTD. (AS AGENT U/S 163 OF CREDIT SUISSE PRIVATE BANKING ON BEHALF OF NON-RESIDENT LENDERS AND NOTEHOLDERS) MAKER CHAMBER-IV 3 RD FLOOR 211 NARIMAN POINT MUMBAI-400021 PAN: AAACR5055K APPELLANT V/S RESPONDENT 2046 2057 2058 AND 2059/MUM/2008 (ASSESSMENT YEAR: 2002-03) 5167 5168 5193 5174 5195 AND 5196/MUM/2010 (ASSESSMENT YEAR: 2004-05) 2 ITA NO. 2058/MUM/2008 (ASSESSMENT YEAR: 2002-03) DY. DIRECTOR OF INCOME TAX (IT) -1(2) ROOM NO.119 SCINDIA HOUSE 1 ST FLOOR BALLARD ESTATE N.M.ROAD MUMBAI-400038. M/S RELIANCE INDUSTRIES LTD. (AS AGENT U/S 163 OF CREDIT LYONNAIS ON BEHALF OF NON-RESIDENT LENDERS AND NOTEHOLDERS) MAKER CHAMBER-IV 3 RD FLOOR 211 NARIMAN POINT MUMBAI-400021 PAN: AAACR5055K APPELLANT V/S RESPONDENT ITA NO. 2059/MUM/2008 (ASSESSMENT YEAR: 2002-03) DY. DIRECTOR OF INCOME TAX (IT) -1(2) ROOM NO.119 SCINDIA HOUSE 1 ST FLOOR BALLARD ESTATE N.M.ROAD MUMBAI-400038. M/S RELIANCE INDUSTRIES LTD. (AS AGENT U/S 163 OF DEUTSCHE BANK ON BEHALF OF NON-RESIDENT LENDERS AND NOTEHOLDERS) MAKER CHAMBERS-IV 3 RD FLOOR 211 NARIMAN POINT MUMBAI-400021 PAN: AAACR5055K APPELLANT V/S RESPONDENT 2046 2057 2058 AND 2059/MUM/2008 (ASSESSMENT YEAR: 2002-03) 5167 5168 5193 5174 5195 AND 5196/MUM/2010 (ASSESSMENT YEAR: 2004-05) 3 ITA NO. 5167/MUM/2010 (ASSESSMENT YEAR: 2004-05) DY. DIRECTOR OF INCOME TAX (IT) -1(2) ROOM NO.119 SCINDIA HOUSE 1 ST FLOOR BALLARD ESTATE N.M.ROAD MUMBAI-400038. M/S RELIANCE INDUSTRIES LTD. (AS AGENT U/S 163 OF DB SERVICES TENNESSEE ON BEHALF OF NON-RESIDENT LENDERS AND NOTEHOLDERS) MAKER CHAMBERS-IV 3 RD FLOOR 222 NARIMAN POINT MUMBAI-400021 PAN: AAACR5055K APPELLANT V/S RESPONDENT ITA NO. 5168/MUM/2010 (ASSESSMENT YEAR: 2004-05) DY. DIRECTOR OF INCOME TAX (IT) -1(2) ROOM NO.119 SCINDIA HOUSE 1 ST FLOOR BALLARD ESTATE N.M.ROAD MUMBAI-400038. M/S RELIANCE INDUSTRIES LTD. (AS AGENT U/S 163 OF DEUTSCHE BANK AG ON BEHALF OF NON-RESIDENT LENDERS AND NOTEHOLDERS) MAKER CHAMBERS-IV 3 RD FLOOR 222 NARIMAN POINT MUMBAI-400021 PAN: AAACR5055K APPELLANT V/S RESPONDENT 2046 2057 2058 AND 2059/MUM/2008 (ASSESSMENT YEAR: 2002-03) 5167 5168 5193 5174 5195 AND 5196/MUM/2010 (ASSESSMENT YEAR: 2004-05) 4 ITA NO. 5193/MUM/2010 (ASSESSMENT YEAR: 2004-05) ASSISTANT DIRECTOR OF INCOME TAX (IT) -2 (1) ROOM NO.120 SCINDIA HOUSE 1 ST FLOOR BALLARD ESTATE N.M.ROAD MUMBAI-400038. M/S RELIANCE INDUSTRIES LTD. (AS AGENT OF STANDARD CHARTERED BANK ON BEHALF OF NON-RESIDENT LENDERS AND NOTEHOLDERS) MAKER CHAMBERS-IV 3 RD FLOOR 222 NARIMAN POINT MUMBAI-400021 PAN: AAACR5055K APPELLANT V/S RESPONDENT ITA NO. 5174/MUM/2010 (ASSESSMENT YEAR: 2004-05) ASSISTANT DIRECTOR OF INCOME TAX (IT) -2 (2) ROOM NO.120 SCINDIA HOUSE 1 ST FLOOR BALLARD ESTATE N.M.ROAD MUMBAI-400038. M/S RELIANCE INDUSTRIES LTD. (AS AGENT U/S 163 OF UFJ BANK AG ON BEHALF OF NON-RESIDENT LENDERS AND NOTEHOLDERS) MAKER CHAMBERS-IV 3 RD FLOOR 222 NARIMAN POINT MUMBAI-400021 PAN: AAACR5055K APPELLANT V/S RESPONDENT 2046 2057 2058 AND 2059/MUM/2008 (ASSESSMENT YEAR: 2002-03) 5167 5168 5193 5174 5195 AND 5196/MUM/2010 (ASSESSMENT YEAR: 2004-05) 5 ITA NO. 5195/MUM/2010 (ASSESSMENT YEAR: 2004-05) ASSISTANT DIRECTOR OF INCOME TAX (IT) -2 (2) ROOM NO.120 SCINDIA HOUSE 1 ST FLOOR BALLARD ESTATE N.M.ROAD MUMBAI-400038. M/S RELIANCE INDUSTRIES LTD. (AS AGENT U/S 163 OF UBS WARBURG LLC ON BEHALF OF NON-RESIDENT LENDERS AND NOTEHOLDERS) MAKER CHAMBERS-IV 3 RD FLOOR 222 NARIMAN POINT MUMBAI-400021 PAN: AAACR5055K APPELLANT V/S RESPONDENT ITA NO. 5196/MUM/2010 (ASSESSMENT YEAR: 2004-05) ASSISTANT DIRECTOR OF INCOME TAX (IT) -2 (2) ROOM NO.120 SCINDIA HOUSE 1 ST FLOOR BALLARD ESTATE N.M.ROAD MUMBAI-400038. M/S RELIANCE INDUSTRIES LTD. (AS AGENT U/S 163 OF UBS AG ON BEHALF OF NON-RESIDENT LENDERS AND NOTEHOLDERS) MAKER CHAMBERS-IV 3 RD FLOOR 222 NARIMAN POINT MUMBAI-400021 PAN: AAACR5055K APPELLANT V/S RESPONDENT DATE OF HEARING : 19.9.2011 DATE OF PRONOUNCEMENT : APPELLANTS BY : SMT. MALATHI SRIDHARAN AND SHRI JITENDRA YADAV RESPONDENTS BY : SHRI ARVIND SONDE 2046 2057 2058 AND 2059/MUM/2008 (ASSESSMENT YEAR: 2002-03) 5167 5168 5193 5174 5195 AND 5196/MUM/2010 (ASSESSMENT YEAR: 2004-05) 6 O R D E R PER BENCH ALL THESE APPEALS PREFERRED BY THE REVENUE ARE DIRECTED AGAINST THE SEPARATE ORDERS PASSED BY THE LD. CIT(A) FOR THE ASSESSMENT YEARS 2002-03 AND 2004-05. SINC E FACTS ARE IDENTICAL AND COMMON ISSUE IS INVOLVED ALL THE SE APPEALS ARE DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE O F CONVENIENCE 2. BRIEFLY STATED ADMITTED FACTS OF THE CASE EXTR ACTED FROM ITA NO. 2046/MUM/2008 FOR THE ASSESSMENT YEAR 2002- 03 AS OBSERVED BY THE LD. CIT(A) ARE THAT THE RE LIANCE INDUSTRIES LIMITED THE APPELLANT HAD RAISED FOR EIGN CURRENCY LOAN OF USD 214 MILLION THROUGH THE ISSUE OF 8.25% FOREIGN CURRENCY BONDS DUE 2027 FOR THE PURPOSE O F PART FINANCING OF IMPORT OF CAPITAL GOODS AND SERVICES. THE APPELLANT REFINANCED THE ABOVE MENTIONED LOAN TO TH E EXTENT OF USD 41.093 MILLION FROM VARIOUS BANKS VIDE FACI LITY AGREEMENTS DATED 14.3.2001 AND 12.4.2001. THE FISC AL AGENT IN RESPECT OF THE SAID LOAN WAS ANZ INVESTME NT BANK. VARIOUS ECB LOANS WERE RAISED BY THE APPELLANT AND THE APPROVAL FROM GOVERNMENT OF INDIA WAS OBTAINED FOR TAKING THE LOANS THROUGH FOLLOWING LETTERS: 2046 2057 2058 AND 2059/MUM/2008 (ASSESSMENT YEAR: 2002-03) 5167 5168 5193 5174 5195 AND 5196/MUM/2010 (ASSESSMENT YEAR: 2004-05) 7 S.NO. LETTER NO. AND DATED AMOUNT (USD MILLION) 1 F.NO.6(50)/93-ECB DATED 19.7.1995 AND SUBSEQUENT LETTER DATED 22.9.1995 AND 15.2.1996 (LOAN KEY NO.1995145) 150 2 F.NO.6(358)/95-ECB DATED 22.8.1995 AND SUBSEQUENT LETTER DATED 19.2.1997 150 3 F.NO.6(578)/95-ECB DATED 28.5.1996 (SANCTION NO.60) 200 4 F.NO.6(578)/95-ECB DATED 28.5.1996 SUPERSEDED BY LETTER DATED 30.7.1996 (SANCTION NO.61) 100 5 F.NO.6(578)/95-ECB DATED 6.1.1997 AND SUBSEQUENT LETTER DATED 10.2.1997(SANCTION NO.666) 100 6 F.NO.6(578)/95-ECB DATED 6.1.1997 AND SUBSEQUENT LETTER DATED 10.2.1997 (SANCTION NO.667) 214 7 F.NO.6(49)/97-ECB DATED 21.7.1997 AND SUBSEQUENT LETTER DATED 31.7.1997 FOR BOTH TRANCHE-I & II TRANCHES I:GBP 150 MILLION. II:USD 150 MILLION TOTAL NOT TO EXCEED USD 405 MILLION SUBSEQUENTLY ON ACCOUNT OF ITS CERTAIN NON-PERFORMA NCE OF CONDITIONS GOVERNMENT OF INDIA THROUGH THEIR L ETTER F.NO.6(99)/98-ECB DATED 5.2.2002 HAS WITHDRAWN THE TAX EXEMPTION GRANTED TO APPELLANT U/S 10(15)(IV) (F) OF THE INCOME TAX ACT IN RESPECT OF THE ABOVE ECBS. IN RE SPECT OF THE ECBS REFERRED TO IN PARA 2.1 ABOVE THE APPEL LANT MADE PAYMENT OF INTEREST OF RS.18 90 161/- TO ANZ INVE STMENT 2046 2057 2058 AND 2059/MUM/2008 (ASSESSMENT YEAR: 2002-03) 5167 5168 5193 5174 5195 AND 5196/MUM/2010 (ASSESSMENT YEAR: 2004-05) 8 BANK ON BEHALF OF VARIOUS INVESTORS THROUGH WHOM T HE LOANS WERE TAKEN. THE APPELLANT FILED RETURN AS AGENT O F ANZ INVESTMENT BANK AND CLAIMED THAT THE INTEREST PAYM ENT OF RS.18 90 161/- WAS EXEMPT FROM TAX IN INDIA AS PER SECTION 10(15(IV) (F) OF THE INCOME TAX ACT AND ACCORDINGLY NO AMOUNT WAS TAXABLE IN INDIA. THE AO EXAMINED THE I SSUE AND HELD THAT AFTER WITHDRAWAL OF THE APPROVAL BY T HE GOVERNMENT OF INDIA THROUGH THEIR LETTER DATED 5.2 .2002 WITHDRAWING THE EXEMPTION THE APPELLANT WAS NOT EN TITLED TO CLAIM THAT THE INTEREST WAS NOT LIABLE TO TAX IN IN DIA. THE AO ACCORDINGLY HELD THAT THE INTEREST PAYMENT WAS LIAB LE TO TAX IN INDIA. THE AO LEVIED TAX AS PER THE RATES PRESCRIBE D UNDER THE RELEVANT DTAA OF THE COUNTRY OF TAX RESIDENCY OF THE INTEREST BENEFICIARY ON THE INTEREST INCOME AFTER G ROSSING UP. THE AO FURTHER OBSERVED THAT THE TRIBUNAL IN ITA NO.516/MUM/2002 DATED 8.2.2005 HAVE QUASHED THE ORD ER PASSED U/S 195(2) OF THE ACT AS WELL REVERSED THE F INDINGS OF THE LD. CIT(A) ACCORDINGLY AND IN THE RESULT THE A PPEAL OF THE ASSESSEE WAS ALLOWED. HE FURTHER OBSERVED THAT THE DECISION OF THE TRIBUNAL HAS NOT YET REACHED FINALITY. HE F URTHER OBSERVED THAT SINCE THE ASSESSMENT IS GETTING TIM E BARRED HE HAS NO ALTERNATIVE BUT TO PASS THE ORDER AND HEL D THAT THE INTEREST WAS LIABLE TO TAX IN INDIA. THE AO ACCORDI NGLY 2046 2057 2058 AND 2059/MUM/2008 (ASSESSMENT YEAR: 2002-03) 5167 5168 5193 5174 5195 AND 5196/MUM/2010 (ASSESSMENT YEAR: 2004-05) 9 COMPLETED THE ASSESSMENT AT AN INCOME OF RS.18 90 161/- VIDE ORDER DATED 23.3.2005 PASSED U/S 143(3) OF THE INCOME TAX ACT 1961 (THE ACT). 3. ON APPEAL THE LD. CIT(A) FOLLOWING THE TRIBUNA L ORDER PASSED IN ITA NO.516/MUM/2002 DATED 8.2.2005 AND A NOTHER ORDER IN ITA NOS.5966 5967 & 5968/MUM/2002 DATED 23.3.2006 OBSERVED AND HELD THAT THE WHOLE CONTROVE RSY OF THE WITHDRAWAL OF EXEMPTION BY CENTRAL GOVERNMENT H AVING ANY EFFECT ON THE CLAIM OF INTEREST INCOME BEING EX EMPT IN THE HANDS OF NON-RESIDENT INVESTORS HAS BEEN EXAMI NED IN GREAT DEPTH. HE FURTHER OBSERVED THAT THE TRIBUNAL MENTIONED THAT THE EXEMPTION HAS BEEN GRANTED TO THE NON-RESI DENT INVESTORS AND NOT TO THE BORROWERS IN INDIA. ACCOR DINGLY FOR THE DEFAULT COMMITTED BY THE BORROWERS IN INDIA N ON- RESIDENT LENDERS CANNOT BE PUNISHED. THE LD. CIT( A) AFTER REFERRING TO THE BINDING NATURE OF THE DECISION OF THE TRIBUNAL IN VIEW OF THE RATIO OF THE DECISION IN BANK OF BARODA V/S H.C. SHRIVASTAVA & OTHERS (2002) 256 ITR 385 (BOM.) AND AGRAWAL WAREHOUSING & LEASING LTD. V/S CIT (2002) 257 ITR 235 (MP) AND THE APPELLATE ORDERS DATED 11.5.2 007 AND 23.5.2007 ON THE IDENTICAL ISSUE HELD THAT EXEMPTIO N WITHDRAWN BY THE CENTRAL GOVERNMENT HOLDING INTER EST AS NOT EXEMPT U/S 10(15)(IV)(F) IS TO BE IGNORED AND T HE INTEREST 2046 2057 2058 AND 2059/MUM/2008 (ASSESSMENT YEAR: 2002-03) 5167 5168 5193 5174 5195 AND 5196/MUM/2010 (ASSESSMENT YEAR: 2004-05) 10 PAYMENT BY THE APPELLANT TO THE NON-RESIDENT LENDE RS AS PER ECB LOAN APPROVED BY THE CENTRAL GOVERNMENT WOULD CONTINUE TO BE EXEMPT. ACCORDINGLY HE HELD THAT TH E INTEREST PAYMENT OF RS.18 90 161/- IS NOT CHARGEABLE TO TAX IN INDIA AND DELETED THE ADDITION MADE BY THE AO. 4. BEING AGGRIEVED BY THE ORDER OF THE LD. CIT(A) THE REVENUE IS IN APPEAL BEFORE US. 5. THE COMMON GROUND TAKEN BY THE REVENUE IN APPEAL S IN ITA NO.2046 2057 2058 AND 2059/MUM/2008 READ A S UNDER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN HOLDING THAT EXEMPT ION WITHDRAWN BY THE CENTRAL GOVERNMENT HOLDING INTER EST AS NOT EXEMPT UNDER SECTION 10(15)(IV) (F) IS TO BE IGNORED AND THE INTEREST PAYMENT BY THE ASSESSEE TO THE NON-RESIDENT LENDERS AS PER ECB LOAN APPROVED BY T HE CENTRAL GOVERNMENT WOULD CONTINUE TO BE EXEMPT; THE APPELLANT PRAYS THAT THE ORDER OF THE LD. CIT(A ) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE AO RESTORED 6. THE COMMON GROUNDS TAKEN BY THE REVENUE IN APPEA LS IN ITA NO.5167 5168 5193 5174 5195 AND 5196/MUM /2010 READ AS UNDER (EXTRACTED FROM ITA NO.5167/MUM/2010) :- 1. WHETHER ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) ERRED IN HOLDING THA T THE WITHDRAWAL ORDER BY THE CENTRAL GOVERNMENT TO THE EFFECT THAT THE INTEREST PAYABLE BY RELIANCE INDUST RIES 2046 2057 2058 AND 2059/MUM/2008 (ASSESSMENT YEAR: 2002-03) 5167 5168 5193 5174 5195 AND 5196/MUM/2010 (ASSESSMENT YEAR: 2004-05) 11 LTD. IS NOT EXEMPT UNDER SECTION 10(15)(IV)(F) IN T HE HANDS OF THE LENDERS IS TO BE IGNORED AND THE INTE REST PAYMENT TO THE NON-RESIDENT LENDERS FOR THE ECB LOA N APPROVED BY THE CENTRAL GOVERNMENT WOULD CONTINUE T O BE EXEMPT. 2. WHETHER ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) ERRED IN HOLDING THA T THE INTEREST INCOME OF RS.1 16 51 64 099/- IN THE HANDS OF THE LENDERS IS NOT CHARGEABLE TO TAX IN INDIA. 3. WHETHER ON THE FACT AND THE CIRCUMSTANCES OF TH E CASE AND IN LAW THE CIT(A) FAILED TO APPRECIATE THA T THE ASSESSING OFFICER IS BOUND BY THE IT ACT TO ENSURE THAT THE EXEMPTION UNDER SECTION 10(15)(IV)(F) IS GRANTE D ONLY WHERE THE NECESSARY APPROVAL WAS IN EXISTENCE AT THE RELEVANT TIME AND IN THE REPRESENT CASE SUCH APPROVAL WAS NON-EXISTENT. 4. THE APPELLANT PRAYS THAT THE ORDER OF THE LD.CIT(A) ON THE ABOVE GROUND BE SET ASIDE AND THAT OF THE ASSESSING OFFICER RESTORED. 5. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY. 7. AT THE TIME OF HEARING THE LD. DR WHILE RELYING ON THE ORDER OF THE AO SUBMITS THAT IN VIEW OF THE PARAGRA PHS 8 9 10 14 21 26 27 28 31 32 AND 33 OF THE JUDGMEN T OF THE HONBLE DELHI HIGH COURT IN RELIANCE INDUSTRIES LTD & ANR. V/S UNION OF INDIA & ANR. (2002) 258 ITR 143(DEL) THEIR LORDSHIPS HAVE DECIDED THE ISSUE AGAINST THE ASSES SEE THEREFORE THE TRIBUNAL IN RELIANCE INDUSTRIES LT D. V/S DDIT(IT) (2005) 3 SOT 501 (MUM.) HAS ERRED IN DECI DING THE IMPUGNED ISSUE IN FAVOUR OF THE ASSESSEE AND TH EREFORE THE ORDER PASSED BY THE TRIBUNAL (SUPRA) PER INCURIAM AND 2046 2057 2058 AND 2059/MUM/2008 (ASSESSMENT YEAR: 2002-03) 5167 5168 5193 5174 5195 AND 5196/MUM/2010 (ASSESSMENT YEAR: 2004-05) 12 NOT TO BE FOLLOWED IN THE PRESENT CASES OR OTHERW ISE THE MATTER MAY BE REFERRED TO THE SPECIAL BENCH. HE THEREFORE SUBMITS THAT THE ORDER PASSED BY THE AO BE RESTORE D. 8. ON THE OTHER HAND THE LD. COUNSEL FOR THE ASSES SEE AT THE OUTSET SUBMITS THAT THIS ISSUE IS SQUARELY CO VERED AGAINST THE REVENUE AND IN FAVOUR OF THE ASSESSEE B Y THE FOLLOWING DECISIONS: I) ASSISTANT DIRECTOR OF INCOME TAX (IT) 3(1) V/S RELIANCE INDUSTRIES LTD ITA NO.901/MUM/2008 (AY-2003-04) DATED 29.9.2009. II) ASSISTANT DIRECTOR OF INCOME TAX (IT) 2(2) V/ S RELIANCE INDUSTRIES LTD ITA NOS.5407 & 5408/MUM/2007 (AY-2003-04) DATED 15.4.2009. III) RELIANCE INDUSTRIES LTD V/S DY. DIRECTOR OF INCOME TAX (IT) 2(1) ITA NOS.5966 5967 & 5968/MUM/2002 & ITA NO.4118/2003 DATED 23.3.2006. IV) RELIANCE INDUSTRIES LTD V/S DY. DIRECTOR OF INCOME TAX (IT) 2(1) ITA NO.516/MUM/2002 DATED 8.2.2005; (2005) 98 TTJ (MUM) 856; (2005) 3 SOT 501(MUM.). HE FURTHER SUBMITS THAT THE TRIBUNAL IN THE CASE OF RELIANCE INDUSTRIES LTD V/S DY. DIRECTOR OF INCOME TAX (IT) 2(1) ITA NO.516/MUM/2002 DATED 8.2.2005 AFTER CONSIDERING T HE DECISION OF THE HONBLE DELHI HIGH COURT IN THE C ASE OF 2046 2057 2058 AND 2059/MUM/2008 (ASSESSMENT YEAR: 2002-03) 5167 5168 5193 5174 5195 AND 5196/MUM/2010 (ASSESSMENT YEAR: 2004-05) 13 RELIANCE INDUSTRIES LTD & ANR. V/S UNION OF INDIA & ANR. (2002) 258 ITR 143(DEL) WHEREIN IT HAS BEEN OBSERVE D AND HELD IN PARA 34 THAT THE QUESTION WHICH SURVIVES FOR CONSIDERATION NOW IS AS TO WHETHER BY REASON OF THE IMPUGNED ORDER THE CENTRAL GOVERNMENT ISSUED ANY DI RECTION TO STATUTORY AUTHORITIES. IN THE INSTANT CASE NO AC TION HAD BEEN TAKEN AS A RESULT WHEREOF THE QUASI-JUDICIAL A UTHORITIES BECAME DENUDED OF THEIR QUASI-JUDICIAL POWER. MEREL Y COMMUNICATING THE IMPUGNED JUDGMENT TO THE EFFECT T HAT SUCH EXEMPTION HAD BEEN WITHDRAWN IS COMMUNICATION OF A FOUNDATION OF FACT. IF ACCORDING TO THE PETITIONER THE ORDER OF THE QUASI-JUDICIAL AUTHORITY SUFFERS FROM ANY ILLEG ALITY THEY COULD HAVE CARRIED THE MATTER HIGHER UP. IN PARAGRAPH 38 OF THE JUDGEMENT IT HAS BEEN OBSERVED AND HELD THAT THERE CANNOT BE ANY DOUBT WHATSOEVER THAT THE ASSESSING A UTHORITY AND THE APPELLATE AUTHORITY ARE QUASI-JUDICIAL AUTH ORITIES. BY REASON OF THE ORDER IMPUGNED IN THE WRIT PETITION T HE CENTRAL GOVERNMENT HAS IN NOWAY CURTAILED THE POWER OF JUDI CIAL OR QUASI-JUDICIAL AUTHORITY. IN PARAGRAPH 39 IT HAS BEEN OBSERVED AND HELD THAT IT IS WELL KNOWN THAT THE JURISDICTION OF JUDICIAL REVIEW OF THIS COURT IS LIMITED. HAVING REGARD TO THE FACTS AND CIRCUMSTANCES WE DO NOT FIND THAT THERE EXISTS ANY ILLEGALITY IRRATIONALITY OR PROCEDURAL IMPROPRIETY IN THE 2046 2057 2058 AND 2059/MUM/2008 (ASSESSMENT YEAR: 2002-03) 5167 5168 5193 5174 5195 AND 5196/MUM/2010 (ASSESSMENT YEAR: 2004-05) 14 DECISION. THIS COURT IS NOT CONCERNED WITH THE MERI T OF THE DECISION. HE FURTHER SUBMITS THAT AGAINST THE SAID FOUR ORDERS OF THE TRIBUNAL THE HONBLE JURISDICTIONAL HIGH COURT VIDE ORDER DATED 20.06.2011 HAS DISMISSED THE NOTIC E OF MOTION VIDE DECISION IN THE DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION) V/S RELIANCE INDUSTRIES L IMITED IN NOTICE OF MOTION NOS.693 695 698 AND 699 OF 2011 WITH INCOME TAX APPEAL (L) NOS.1688 1682 1692 AND 1685 OF 2006 RESPECTIVELY. ON THE ISSUE RAISED BY THE LD. D R THAT THE MATTER MAY BE REFERRED TO THE SPECIAL BENCH OR LARG ER BENCH OF THE TRIBUNAL THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITS THAT SINCE NO CONTRARY DECISION HAS BEEN BR OUGHT ON RECORD BY THE REVENUE THERE IS NO REQUIREMENT TO REFER THE MATTER TO THE SPECIAL BENCH OR LARGER BENCH OF THE TRIBUNAL AS SUGGESTED BY THE LD. DR. HE THEREFORE SUBMITS TH AT THE ORDERS PASSED BY THE LD. CIT(A) BE UPHELD. 9. HAVING CAREFULLY HEARD THE SUBMISSIONS OF THE RI VAL PARTIES AND PERUSING THE MATERIAL AVAILABLE ON REC ORD WE FIND THAT THE FACTS ARE NOT IN DISPUTE INASMUCH AS IT I S ALSO NOT IN DISPUTE THAT ON THE IDENTICAL ISSUE IN THE CASE OF RELIANCE INDUSTRIES LTD V/S DY. DIRECTOR OF INCOME TAX (IT ) 2(1) ITA NO.516/MUM/2002 DATED 8.2.2005; (2005) 98 TTJ (MUM) ; 2046 2057 2058 AND 2059/MUM/2008 (ASSESSMENT YEAR: 2002-03) 5167 5168 5193 5174 5195 AND 5196/MUM/2010 (ASSESSMENT YEAR: 2004-05) 15 (2005) 3 SOT 501(MUM.) THE TRIBUNAL HAS DECIDED THE MATTER IN FAVOUR OF THE ASSESSEE VIDE FINDING RECOR DED IN PARAGRAPHS 13 TO 22 OF THE REPORT WHICH ARE REPRODU CED AS UNDER : 13. WE HAVE CAREFULLY HEARD THE SUBMISSIONS OF BOTH THE SIDES AT LENGTH AND THOROUGHLY EXAMINED THE FAC TUAL AS WELL AS LEGAL ASPECT OF THE ISSUE RAISED BEFORE US ON PROPER PERUSAL OF THE MATERIAL PLACED BEFORE US. THE APPELLANT WAS AGGRIEVED AND THE ISSUE ARISES FROM A N ORDER PASSED U/S. 195(2) OF IT ACT DATED 13/2/02 RELEVANT PORTION ALREADY REPRODUCED SUPRA THROUGH WHICH THE ASSESSEE WAS DIRECTED TO REMIT THE INTEREST ONL Y AFTER DEDUCTING WITH HOLDING TAX @ 20%. IN FACT THE APPE LLANT HAS MOVED AN APPLICATION SEEKING A NO OBJECTION CERTIFICATE IN RESPECT OF REMITTANCE OF INTEREST O F US $ 1 05 902.78 TO M/S. DEUTSCHE BANK AG LONDON WITHOU T DEDUCTION OF WITH HOLDING TAX AT SOURCE. THIS REQU EST WAS REJECTED BY THE CONCERNED AUTHORITY I.E DY.DIRE CTOR OF INCOME TAX (INTERNATIONAL TAXATION) MUMBAI VIDE IMPUGNED ORDER U/S.195(2) OF IT ACT ON THE GROUND T HAT THE EXEMPTION U/S./10(15)(IV)(F) IN RESPECT OF INTE REST PAYMENT HAD ALREADY BEEN WITHDRAWN BY GOVERNMENT OF INDIA VIDE ITS COMMUNICATION DATED 5/2/2000. SO TH E INTEREST WAS HELD TO BE LIABLE TO WITH HOLDING TAX IN INDIA. THE FIRST APPELLATE AUTHORITY HAS ALSO DISMISSED TH E PLEA OF THE ASSESSEE AND AFFIRMED THE ACTION OF THE A.O IN A BRIEF ORDER RELEVANT PORTION ALREADY REPRODUCED SU PRA. WE HAVE ALSO NARRATED IN ABOVE PARAS THE FACTS AND FIGURES OF THE EXTERNAL COMMERCIAL BORROWINGS (IN S HORT ECB) AVAILED IN RESPECT OF A PROJECT OF PETRO CHEMI CAL COMPLEX AT HAZIRA AND JAMNAGAR. TO RESOLVE THIS IS SUE IT IS IN THE INTEREST OF JUSTICE TO FIRST OF ALL ST REAMLINE THE QUESTION TO BE ANSWERED BY US WHICH ACCORDING TO US ARE AS FOLLOWS: (1) WHAT IS THE IMPLICATION OF HONBLE DELHI HIGH C OURT DECISION AS WELL AS THE SLP FILED BEFORE THE HONBL E APEX COURT ON THE JURISDICTION OF THE TRIBUNAL.? 2046 2057 2058 AND 2059/MUM/2008 (ASSESSMENT YEAR: 2002-03) 5167 5168 5193 5174 5195 AND 5196/MUM/2010 (ASSESSMENT YEAR: 2004-05) 16 (2) WHAT IS THE SCOPE OF SECTION 10(15)(IV)(F) AND WHETHER THE EXEMPTION WAS RIGHTLY WITHDRAWN CONSIDERING THE UTILIZATION OF ECB AND MERITS OF TH E CASE? (3) WHETHER THE A.O WAS RIGHT IN DIRECTING THE ASSE SSEE TO DEDUCT WITHHOLDING TAX @ 20% VIDE AN ORDER U/S.195(2) OF IT ACT 14. EVEN BEFORE WE PROCEED TO ANSWER THE ABOVE QUESTIONS IT IS PERTINENT TO EXAMINE THE CONTENTS O F SECTION 248 OF IT ACT WHICH ACCORDING TO BOTH THE PARTIES IS THE ONLY SECTION UNDER WHICH AN APPEAL LIES AGAI NST SUCH-DIRECTION AS MADE IN THE IMPUGNED ORDER U/S.19 5 OF IT ACT. THE SECTION 248 READS AS FOLLOWS: APPEAL BY PERSON DENYING LIABILITY TO DEDUCT TAX: 248. ANY PERSON HAVING IN ACCORDANCE WITH THE PROVISIONS OF SECTION 195 AND 200 DEDUCTED AND PAID TAX IN RESPECT OF ANY SUM CHARGEABLE UNDER THE ACT OTHER THAN INTEREST WHO DENIES HIS LIABILITY TO MA KE SUCH DEDUCTION MAY APPEAL TO THE COMMISSIONER (APPEALS) TO BE DECLARED NOT LIABLE TO MAKE SUCH SECTION. FROM PLAIN READING OF THIS SECTION THERE IS NO AMBI GUITY THAT AN APPEAL IS PROVIDED TO A PERSON WHO HAVING DEDUCTED TAX AND PAID THE SUM DENIES HIS LIABILITY TO MAKE SUCH DEDUCTION. A PERSON WHO DENIES LIABILITY TO DEDUCT TAX U/S.195 ON THE AMOUNT PAYABLE TO A NON- RESIDENT IS ENTITLED TO APPEAL U/S248 AND THE CIT( A) HAS THE JURISDICTION TO QUANTIFY THE AMOUNT ON WHICH AL ONE THE TAX IS DEDUCTIBLE. IN THE CASE OF CIT VS. WESMAN ENGINEERING CO. PVT. LTD. 188 ITR 327(SC) IT WAS H ELD THAT LANGUAGE OF SECTION 248 IS WIDE ENOUGH TO CO VER ANY ORDER PASSED U/S.195. IN AN ANOTHER DECISION HONBLE KARNATAKA HIGH COURT IN THE CASE OF ACIT VS . MOTOR INDUSTRIES CO. 249 ITR 141 HAS ALSO ENTERTAI NED THIS ARGUMENT THAT WHERE AN ASSESSEE WAS DENYING TH E VERY LIABILITY TO DEDUCT TAX THE TRIBUNAL WAS JUST IFIED IN ENTERTAINING THE APPEAL IN RESPECT OF THE LIABILITY U/S.195 OF IT ACT AND APPEALS RELATING TO LEVY OF INTEREST. THESE 2046 2057 2058 AND 2059/MUM/2008 (ASSESSMENT YEAR: 2002-03) 5167 5168 5193 5174 5195 AND 5196/MUM/2010 (ASSESSMENT YEAR: 2004-05) 17 TWO DECISIONS ARE SUFFICIENT AND SUFFICE TO STATE T HAT THE FIRST APPELLATE AUTHORITY AS WELL AS THE TRIBUNAL B OTH ARE COMPETENT TO DECIDE THIS ISSUE BEING DULY AUTHORIZE D BY THE ABOVE CITED PROVISION OF IT ACT. 15. NOW WE HAVE TO ANSWER THE FIRST QUESTION ABOUT THE JURISDICTION OF THIS TRIBUNAL KEEPING IN VIEW T HE ORDER OF HONBLE DELHI HIGH COURT AND THE SLP DECIDED BY THE HONBLE APEX COURT. ON CAREFUL READING OF THE ORDE R OF THE DELHI HIGH COURT IT IS IMPLICIT THAT THE COURT WAS AWARE OF THE FACT THAT VIDE AN ORDER U/S.195(2) DAT ED 13/2/02 THE APPLICATION OF THE ASSESSEE HAD BEEN REJECTED. FURTHER THE HONBLE COURT WAS ALSO AWARE THAT AN APPEAL HAD BEEN PREFERRED BY THE APPELLANT AGAIN ST THE SAID REJECTION BEFORE THE FIRST APPELLATE AUTHO RITY I.E LD. CIT (A) VIDE PARA-13 THE HONBLE COURT IN THE S AID ORDER HAS CLEARLY MENTIONED ABOUT THESE FACTS. BEI NG FULLY AWARE OF THE ENTIRE SITUATION AND THE CIRCUMS TANCES UNDER WHICH THE EXEMPTION WAS WITHDRAWN RESULTING I NTO DIRECTION OF 20% DEDUCTION OF TAX THE HONBLE COURT AT PAGE-159 PLACITUM H HAS OBSERVED AS FOLLOWS: THE QUESTION WHICH SURVIVES FOR CONSIDERATION NOW IS AS TO WHETHER BY REASON OF THE IMPUNGNED ORDER THE CENTRAL GOVERNMENT ISSUED ANY DIRECTION TO THE STATUTORY AUTHORITIES. IN THE INSTANT CASE NO ACTI ON HAD BEEN TAKEN AS A RESULT WHEREOF THE QUASI-JUDICI AL AUTHORITIES BECAME DENUDED OF THEIR QUASI-JUDICIAL POWER. MERELY COMMUNICATING THE IMPUGNED JUDGMENT TO THE EFFECT THAT SUCH EXEMPTION HAD BEEN WITHDRAWN IS COMMUNICATION OF A FOUNDATION OF FACT. IF ACCORDING TO THE PETITIONER THE ORDER OF THE Q UASI JUDICIAL AUTHORITY SUFFERS FROM ANY ILLEGALITY THEY COULD HAVE CARRIED THE MATTER HIGH UP. SO THE HONBLE COURT HAS VIEWED THAT THE QUASI-JUDI CIAL AUTHORITIES CANNOT BE DENUDED OF THEIR QUASI JUDICI AL POWER. MERE COMMUNICATION OF WITHDRAWAL OF EXEMPTI ON ACCORDING TO THE VIEW EXPRESSED WAS A FOUNDATION OF FACT TO BE ADJUDICATED BY QUASI-JUDICIAL AUTHORITY TO DE TERMINE WHETHER SUCH AN ORDER SUFFERS FROM ANY ILLEGALITY. AFTER EXPRESSING THIS VIEW THE HONBLE COURT HAS CONCLUDE D AS FOLLOWS VIDE PLACITUM C AND D ON PAGE 160. 2046 2057 2058 AND 2059/MUM/2008 (ASSESSMENT YEAR: 2002-03) 5167 5168 5193 5174 5195 AND 5196/MUM/2010 (ASSESSMENT YEAR: 2004-05) 18 THERE CANNOT BE ANY DOUBT WHATSOEVER THAT THE ASSESSING AUTHORITY AND THE APPELLATE AUTHORITY ARE QUASI-JUDICIAL AUTHORITIES. BY REASON OF THE ORDER IMPUGNED IN THE WRIT PETITION THE CENTRAL GOVERNMEN T HAS IN NO WAY CURTAILED THE POWER OF A JUDICIAL OR QUASI-JUDICIAL AUTHORITY (C) IT IS WELL KNOWN THAT THE JURISDICTION OF JUDICIAL REVIEW OF THIS COURT IS LIMITED. HAVING REGARD TO THE FAC TS AND CIRCUMSTANCES WE DO NOT FIND THAT THERE EXISTS ANY ILLEGALITY IRRATIONALITY OR PROCEDURAL IMPROPR IETY IN THE DECISION. THIS COURT IS NOT CONCERNED WITH THE MERITS OF THE DECISION. (D) AFTER HEARING THE SUBMISSIONS OF BOTH THE SIDES AND ON THREADBARE READING OF THE ORDER OF THE HONBLE DELH I HIGH COURT WE FIND FORCE IN THE ARGUMENTS OF LD. A.R. H AVING READ THE PARAS OF THE SAID ORDER IT CAN BE CULLED O UT THAT FINAL DIRECTION OF THE DELHI HIGH COURT WAS THAT TH IS ISSUE BE DECIDED BY THE ASSESSING AUTHORITY AND THE APPEL LATE AUTHORITY WHO ARE THE QUASI-JUDICIAL AUTHORITIES. DUE TO THIS REASON THE HONBLE COURT HAS NOT SHOWN ITS CON CERN WITH THE MERITS OF THE DECISION. ON A CONJOINT REA DING OF THE TWO PARAS IT IS AMPLY CLEAR THAT THE MATTER WAS LEFT OPEN TO BE DECIDED BY QUASI-JUDICIAL AUTHORITIES AF TER TAKING INTO ACCOUNT THE MERITS OF THE DECISION OF WITHDRAWAL OF EXEMPTION CHALLENGED BEFORE THE HONB LE COURT. SO WE HAVE TO ACT UPON ACCORDINGLY AND FOLL OWING THE DIRECTION OF THE HONBLE COURT HEREBY WE ARE AUTHORIZED AS WELL AS EMPOWERED TO DECIDE THIS APPE AL. 16. AT THIS JUNCTURE EVEN AFTER DECIDING THE ISSUE OF JURISDICTION WHETHER LIES WITH THE TRIBUNAL OR NOT IN ABOVE PARA STILL WE DEEM IT PROPER TO CONSIDER A S TEP FURTHER THAT WHETHER THE TRIBUNAL HAS JURISDICTION TO LOOK INTO THE QUESTION AS WHETHER THE DECISION OF THE CE NTRAL GOVERNMENT AND WITHDRAWAL OF EXEMPTION WAS CORRECT. IN THIS CONNECTION AN ARGUMENT WAS PLACED BEFORE US THAT AN ACT IS THE SUPREME CONSIDERING THE HIERARCHICAL LEVELS I.E THE SUPREME IS THE ACT THEN COMES THE RULE MADE THERE UNDER NEXT IS THE POSITION OF NOTIFICATION A ND THE LAST IS LETTERS OR APPROVALS. IT WAS ARGUED WITH SUPPORTING CASE LAWS THAT THE RULES MUST BE SUB-SER VIENT TO THE PROVISIONS OF THE SECTION ENACTED IN A STATU TE. IN THE CASE OF CIT VS. NEW CITIZEN BANK OF INDIA 58 I TR 468 THE HONBLE BOMBAY HIGH COURT HAS ALSO OBSERVED 2046 2057 2058 AND 2059/MUM/2008 (ASSESSMENT YEAR: 2002-03) 5167 5168 5193 5174 5195 AND 5196/MUM/2010 (ASSESSMENT YEAR: 2004-05) 19 WHEN A RULE IS MADE UNDER A PARTICULAR SECTION IT IS THE SECTION WHICH CONTROLS AND GOVERNS THE RULE AND THE RULE MUST BE CONSTRUED IN THE LIGHT OF THE DECISION AND NOT VIEW-VERSA. SO THE BASIC QUESTION IS THAT ONCE BECAUSE OF THE LETTER OR NOTIFICATION THE PROVISIONS OF THE STATUTE HAVE BEEN NEGATED OR DIMINISHED BY AN EXECUTIVE ORDER THEN WH AT IS THE COURSE LEFT TO A TAX PAYER. NATURALLY THE ANSW ER IS THAT A TAX PAYER HAS NO OPTION BUT TO KNOCK THE DOO R OF THE JUDICIARY. IN A PLETHORA OF DECISIONS IT WAS UNEQUIVOCALLY HELD THAT THE FULL EFFECT OF THE PROV ISION HAS TO BE GIVEN IN PREFERENCE TO SUPPORTING LEGISLA TURE SUCH AS RULES NOTIFICATIONS APPROVALS ETC. SOME OF THE DECISIONS IN THIS REGARD ARE WORTH QUOTING AS FOLLO WS: (I) CIT VS. ABDUL HUSSEIN ESSAJI ARSIWALLA 69 ITR 38 (BOM) WHEREIN THE HONBLE COURT AT PAGE-44 HAS OBSERVED AS UNDER: IT IS A CARDINAL PRINCIPLE OF INTERPRETATION THAT IT IS THIS MAIN STATUTE WHICH WILL GOVERN THE RULES MADE UNDER THE RULE MAKING POWER GIVEN UNDER THE ACT AND NOT VIEW VERSA. IF THE INTERPRETATION OF THE PROVI SION OF THE STATUTE IS CLEAR A RULE FRAMED UNDER THE RU LE MAKING POWER GIVEN UNDER THE STATUTE CANNOT AFFECT IT. IT IS WELL-SETTLED THAT RULES MUST BE INTERPRE TED IN THE LIGHT OF THE SECTION UNDER WHICH IT IS MADE AND NO EXERCISE OF THE RULE-MAKING POWER CAN AFFECT OR DEROGATE FROM THE FULL OPERATIVE EFFECT OF THE PROVISIONS OF THE STATUE. (II) CIT VS. TAJ MAHAL HOTEL 82 ITR 44(SC) WHERE IN VIDE PARA-49 THE HONB;E COURT HAS OBSERVED AS UNDE R: IT HAS BEEN RIGHTLY OBSERVED THAT THE RULES MEANT ONLY FOR THE PURPOSE OF CARRYING OUT THE PROVISIONS OF THE ACT AND THEY COULD NOT TAKE WAS WHAT WAS CONFERRED BY THE ACT OR WHITTLE DOWN ITS EFFECT (III) M.C.T. MUTTAIAH CHETTIAR FAMILY TRUST VS. 4TH ITO 86 ITR 282(MAD) WHEREIN AT PAGE 88 OBSERVED AS UNDE R: 2046 2057 2058 AND 2059/MUM/2008 (ASSESSMENT YEAR: 2002-03) 5167 5168 5193 5174 5195 AND 5196/MUM/2010 (ASSESSMENT YEAR: 2004-05) 20 THE ROLE OF SUBORDINATE OR DELEGATED LEGISLATION A ND THE PART IT COULD PLAY AS AN ANCILLARY BODY TO THE PRIMARY LEGISLATIVE AUTHORITY IS VERY WELL CHANNALI SED BY RULES OF INTERPRETATION. ANY SUCH DELEGATED POW ER BEING ESSENTIALLY SUBORDINATE IN ITS NATURE IS LIM ITED BY THE TERMS OF THE ENACTMENT WHERE UNDER IT IS DELEGATED. IT IS THEREFORE NECESSARY THAT THE DELEGATED AUTHORITY MUST BE EXERCISED STRICTLY IN ACCORDANCE WITH THE POWERS CREATING IT AND IN THE LIGHT AND SPIRIT OF THE PARENT OR ENABLING STATUTE. IT CANNOT BE POSTULATED THAT THE RIGHT OF DELEGATION C AN BE UNLIMITED IN ITS SCOPE.. ALL RULES OR FORMS WHICH ARE CREATURES OF SUCH RULE S PRESCRIBED FOR THE PURPOSE OF EFFECTUATING THE POLI CY OF THE STATUTE MUST BE READ IN THE LIGHT OF THE STATUTORY PROVISIONS IN THE MAIN ENACTMENT UNDER WHICH THEY ARE MADE AND THEREFORE SUCH RULES OR FORMS CANNOT CONTRADICT OR CREATE AN IRRECONCILABLE POSITION RESULTING IN AN ANOMALOUS SITUATION. THE PRIMARY AND THE ONLY OBJECT OF THE INCOME-TAX ACT I S TO TAX TAX AND TAX THE INCOME. IF THE LEGISLATURE IN ITS WISDOM GRANTS A CONCESSION AND BY CREATING A CONCESSION A RECIPROCAL RIGHT OR PRIVILEGE IS VESTE D IN A ASSESSEE SUCH A RECIPROCAL RIGHT CANNOT BE WILDL Y DEALT WITH SO AS TO NEGATE ITS USEFULNESS BY MAKING A RULE WHICH CANNOT BE RECONCILED WITH THE MAIN STATUTORY PROVISION. THE OBJECT OF THE SUBORDINATE LEGISLATURE IS TO CARRY OUT THE STATUTORY PROVISION S EFFECTIVELY AND NOT TO NEUTRALIZE OR CONTRADICT THE M. THE RULES MADE UNDER THE RULE-MAKING POWER SHOULD STRICTLY CONFORM WITH THE INTENDMENT OF THE MAIN PROVISIONS OF THE STATUTE AND CAN BE CONSISTENT THEREWITH (IV) CIT VS. BOMBAY STATE TRANSPORT CORPORATION 11 8 ITR 399 (BOM) WHEREIN VIDE PAGE 405 OBSERVED AS UNDER: IT WOULD APPEAR TO US THAT THERE IS MUCH TO BE SAI D IN FAVOUR OF THE VIEW THAT IT IS NOT WITHIN THE COMPETENCE OF THE RULE-MAKING AUTHORITY. TO PUT IT IN OTHER WORDS THE RULE MADE IN THIS MANNER WHICH 2046 2057 2058 AND 2059/MUM/2008 (ASSESSMENT YEAR: 2002-03) 5167 5168 5193 5174 5195 AND 5196/MUM/2010 (ASSESSMENT YEAR: 2004-05) 21 PROVIDES FOR A NIL PERCENTAGE OF DEPRECIATION ON A CERTAIN CLASS OF ASSET OR IN CLASS OF CASES TO US E THE LANGUAGE OF S 10(2)(VI) CANNOT BE ACCEPTED AS A RULE MADE FOR CARRYING OUT THE PURPOSES OF THE ACT INDEED SUCH A RULE MAY BE REGARDED AS PATENTLY VIOLATE OF THE PURPOSES OF THE ACT I.E OF S 10(2). (V) CIT VS. HYDERABAD ASBESTOS CEMENT PRODUCTS LTD 172 ITR 762(AP) WHEREIN THE HONBLE COURT AT P AGE NO.775 & 776 HAS OBSERVED AS UNDER: LEARNED COUNSEL FOR THE ASSESSEE INVITED OUR ATTENTION TO THE DECISION OF THE SUPREME COURT IN C IT VS. S. CHENNIAPPA MUDALIAR (1969) 74 ITR 41. RELYING ON THIS DECISION LEARNED COUNSEL REPRESENTED THAT IF THE NOTIFICATION SHOULD BE HELD TO BE INCONSISTENT IN ANY MANNER IT SHOULD GIVEN WAY TO THE STATUTORY PROVISIONS CONTAINED IN SECTION 36(1)(IV) OF THE ACT AND THEREFORE IT IS NOT STRI CTLY NECESSARY FOR THIS COURT TO STRIKE DOWN CONDITIONS NOS. 2 AND 3 OF THE NOTIFICATION IN QUESTION ... IN ALL THESE CASES THE COURTS WERE DEALING WITH TH E CONSTITUTIONAL VALIDITY OF THE PROVISIONS AS OPPOSE D TO THE VALIDITY OF SUBORDINATE LEGISLATION WITH REFERENCE TO THE PROVISIONS OF THE ACT ITSELF. LEA RNED STANDING COUNSEL DOES FAIRLY ADMIT THAT THE SUPREME COURT DECISION REFERRED TO ABOVE DOES PROVIDE THAT EVEN IN A REFERENCE PROCEEDING IF THE SUBORDINATE LEGISLATION IS HELD TO BE IN EXCESS OF THE POWER CONFERRED IT COULD BE IGNORED AND THE MATTER DECIDED KEEPING IN MIND THE PROVISIONS OF THE ACT WHICH ARE PARAMOUNT. WE THINK THAT IN THE FACTS AND CIRCUMSTANCES OF THI S CASE WE MUST INVOKE THE DOCTRINE OF READING DOWN AND APPLY THE PRINCIPLE ENUNCIATED BY THE SUPREME COURT IN THE ABOVE REFERRED CASE. WE MAY REFER TO THE FOLLOWING OBSERVATION OF THE SUPREME COURT (P.48). IT IS TRUE THAT THE TRIBUNALS POWERS IN DEALING W ITH THE APPEALS ARE OF THE WIDEST AMPLITUDE AND HAVE I N SOME CASES BEEN HELD SIMILAR TO AND IDENTICAL WITH 2046 2057 2058 AND 2059/MUM/2008 (ASSESSMENT YEAR: 2002-03) 5167 5168 5193 5174 5195 AND 5196/MUM/2010 (ASSESSMENT YEAR: 2004-05) 22 THE POWERS OF AN APPELLATE COURT UNDER THE CIVIL PROCEDURE CODE. (VI) CIT VS. SIRPUR PAPER MILLS 237 ITR 41(SC) AS PER THE HEAD NOTES RELEVANT OBSERVATION OF THE HON BLE COURT IS AS FOLLOWS. THE SECTION STATES THAT THE DEDUCTION SHALL BE WHOLLY ALLOWED. IT PERMITS THE BOARD TO SPECIFY CONDITIONS BUT THESE CONDITIONS CANNOT HAVE THE EFFECT OF CURTAILING THE SCOPE OF THE DEDUCTION GRANTED BY THE SECTION. THE AMPLITUDE OF THE DEDUCTION PERMITTED BY THE SECTION CANNOT BE CUT DOWN UNDER THE GUISE OF IMPOSING A CONDITION. IN FACT THIS IS NOT A CONDITION BUT AN IMPERMISSIBLE ATTEMPT TO REWRITE THE SECTION. THE LAST CONDITION IMPOSED BY THE SAID NOTIFICATION IS THAT THE DEDUCT ION SHALL BE SPREAD OUT EQUALLY OVER A PERIOD OF FIVE YEARS COMMENCING WITH THE ASSESSMENT YEAR RELATING TO THE PREVIOUS YEAR IN WHICH THE AMOUNT WAS PAID. THIS TOO IS N CONDITION BUT A PROVISION SUPER ADD ED TO THE SECTION WHICH DOES NOT CONTEMPLATE ANY SUCH DISTRIBUTION OF THE DEDUCTION. UNDER THE SECTION T HE DEDUCTION IS AVAILABLE IN THE ASSESSMENT YEAR RELATING TO THE PREVIOUS YEAR IN WHICH THE PAYMENT WAS MADE AND IT MUST BE SO GRANTED. THE SECOND AND THIRD CONDITIONS AFORESAID ARE NOT VALID. 17. THE PURPOSE OF ABOVE DISCUSSION BY REPRODUCTION OF RELEVANT EXTRACTS OF CERTAIN PRECEDENTS IS TO AS CERTAIN WHETHER THE TRIBUNAL HAS ITS ROLE IN DECIDING THE I SSUE CROPPED UP ON ACCOUNT OF A RULE OR NOTIFICATION OR ANY SUCH DECISION TAKEN BY SUB-ORDINATE QUASI-JUDICIAL AUTHORITY. ON CAREFUL READING OF THE ABOVE DECISIO NS IT IS IMPLICIT THAT THE TRIBUNAL DOES HAVE THE POWER TO D EAL WITH THE VALIDITY OF SUCH RULES OR NOTIFICATION AND BY APPLYING THE DOCTRINE OF READING DOWN CAN STRIKE DOWN SUCH RULES IF HELD TO BE IN CONTRADICTION WITH THE PROVISIONS OF THE STATUTE ITSELF. THE GIST OF ALL THE ABOVE DECISIONS IS THAT THE RULES ARE MADE ONLY FOR THE P URPOSE OF CARRYING OUT THE PROVISIONS OF THE ACT WHICH CAN NOT BE TAKEN AWAY OR WHITTLE DOWN THE EFFECT CONFERRED BY THE STATUTE. WITH THE RESULT WE HEREBY AGREE WITH THE CONTENTIONS OF LD. A.R THAT THE ITAT HAS BOTH THE P OWER AND DUTY TO DEAL WITH SUCH RULES OR NOTIFICATION AN D 2046 2057 2058 AND 2059/MUM/2008 (ASSESSMENT YEAR: 2002-03) 5167 5168 5193 5174 5195 AND 5196/MUM/2010 (ASSESSMENT YEAR: 2004-05) 23 DECIDE WHETHER THE SAME ARE IN AGREEMENT WITH THE M AIN PROVISIONS OF THE STATUTE. IN VIEW OF ABOVE DISCUS SION IN THE PRESENT APPEAL NOW WE HAVE TO DECIDE THE VALID ITY OF THE WITHDRAWAL OF EXEMPTION AS HAS BEEN DONE BY THE SUBORDINATE COMPETENT AUTHORITY. FOR THIS PURPOSE FIRST OF ALL WE HAVE TO EXAMINE THE LANGUAGE OF THE RELEV ANT SECTION AND ITS SCOPE AS WELL AS ITS APPLICATION. 18. THE SECTION UNDER WITH EXEMPTION IS GRANTED IS SECTION 10(15)(IV)(F) OF IT ACT READS AS FOLLOWS: INCOME NOT INCLUDED IN TOTAL INCOME 10. IN COMPUTING THE TOTAL INCOME OF A PREVIOUS YEAR OF ANY PERSON ANY INCOME FALLING WITHIN ANY O F THE FOLLOWING CLAUSES SHALL NOT BE INCLUDED (15) . (IV) INTEREST PAYABLE --- (F) BY AN INDUSTRIAL UNDERTAKING IN INDIA ON ANY MO NEY BORROWED BY IT IN FOREIGN CURRENCY FROM SOURCES OUT SIDE INDIA UNDER A LOAN AGREEMENT APPROVED BY THE CENTRA L GOVERNMENT HAVING REGARD TO THE NEED FOR INDUSTRIAL DEVELOPMENT IN INDIA TO THE EXTENT TO WHICH SUCH INTEREST DOES NOT EXCEED THE AMOUNT OF INTEREST CALCULATED AT THE RATE APPROVED BY THE CENTRAL GOVERNMENT IN THIS BEHALF HAVING REGARD TO THE TE RMS OF THE LOAN AND ITS REPAYMENT. ON PLAIN READING OF THIS SECTION IT IS CLEAR THAT C ERTAIN CONDITIONS ARE REQUIRED TO BE FULFILLED FOR AVAILIN G THE TAX EXEMPTION SUCH AS FIRSTLY THE PERSON TAKING THE LO AN MUST BE AN INDUSTRIAL UNDERTAKING SECONDLY THE LOA N MUST BE IN FOREIGN CURRENCY FROM SOURCES OUTSIDE IN DIA THIRDLY THE LOAN AGREEMENT MUST BE APPROVED BY THE CENTRAL GOVERNMENT HAVING REGARD TO THE NEED FOR INDUSTRIAL DEVELOPMENT IN INDIA AND LASTLY THE RATE OF INTEREST PAYABLE ON THE SAID LOAN SHOULD NOT EXCEED THE RATE APPROVED BY THE CENTRAL GOVERNMENT HAVING REGA RD TO THE TERMS OF THE LOAN AND ITS REPAYMENT. WHILE CONSIDERING THE ARGUMENTS OF LD. A.R. SUPRA WE HAV E 2046 2057 2058 AND 2059/MUM/2008 (ASSESSMENT YEAR: 2002-03) 5167 5168 5193 5174 5195 AND 5196/MUM/2010 (ASSESSMENT YEAR: 2004-05) 24 EXAMINED THE PROCEDURE ADOPTED BY THE APPELLANT AS WELL AS THE PRESCRIBED AUTHORITY BEFORE APPROVING THE LO AN. THE COMPANY HAS RAISED FOREIGN CURRENCY LOAN IN THE PAST AS AN EXTERNAL COMMERCIAL BORROWINGS (ECB). I N THIS REGARD SEVERAL CORRESPONDENCE HAS BEEN MADE WI TH THE GOVERNMENT OF INDIA AND THE LOAN WAS APPROVED B Y THE DIRECTOR (ECB) DEPARTMENT OF ECONOMIC AFFAIRS MINISTRY OF FINANCE NORTH BLOCK NEW DELHI. AS FA R AS THE APPROVAL OF LOAN AND THE SANCTIONING OF AGREEME NT IS CONCERNED THE SAME IS NOT IN DISPUTE AND IT IS AN ADMITTED FACT SUPPORTED BY SEVERAL CORRESPONDENCE A ND LETTERS WRITTEN MAY BACK SINCE 1993 ONWARDS. THERE IS A REFERENCE OF SUCH CORRESPONDENCE IN THE ABOVE PARAS OF THIS ORDER AND THE PAPER BOOK CONTAINS THE COPIES O F ALL THOSE LETTERS AND APPROVALS. TO FINANCE ITS PROJEC T OF JAMNAGAR PETRO CHEMICAL COMPLEX EXTERNAL BORROWING S WERE MADE IN TERMS OF THE POLICY OF GOVERNMENT OF I NDIA GRANTING PERMISSION FOR ECB TO BE UTILIZED BY INDUS TRIAL UNDERTAKINGS IN INDIA. UNDER THIS PLAN THE COMPANY HAD MADE SEVERAL APPLICATION TO GOVERNMENT OF INDIA FRO M TIME TO TIME AND OBTAINED PERMISSION TO RAISE ECB L OANS IN FOREIGN EXCHANGE. FURTHER AN APPLICATION WAS MO VED TO RAISE THE LOANS UPTO US $ 4.25 MILLION. IN THIS REGARD DY.DIRECTOR (ECB) VIDE A LETTER DATED 6/10/97 HAS R AISED A QUESTION ABOUT THE UTILIZATION OF ECB ALREADY SANCTIONED IN THE HAZIRA PHASE-II EXPANSION PROJECT . THE UTILIZATION ECB WAS EXPLAINED BY THE COMPANY TH AT OUT OF THE US $ 914 MILLION ECB RECEIVED US $ 205. 35 MILLION WAS YET TO BE UTILIZED AS ON 31/1/97. THE EXPLANATION WAS GIVEN IN RESPECT OF THE SAID UNUTIL IZED ECB THAT THERE WERE LETTERS OF CREDIT TO THE TUNE O F US$224.88 MILLION. SO AT THAT TIME IT WAS MENTIONE D THAT THE CONDITIONS WERE SATISFIED AS THE ENTIRE AMOUNT OF ECB OBTAINED FOR HAZIRA PHASE-II PROJECT WAS EITHER UTILIZED IN THE PROJECT OR KEPT FOR FOREX COMMITMEN T. ON PAGE 15 OF THE COMPILATION PLACED ON RECORD THERE I S A DETAILED WORKING OF THE AMOUNT UTILIZED AND ALSO KE PT FOR FOREX COMMITMENT. SUBSEQUENTLY A REQUEST WAS MADE TO GRANT PERMISSION TO PRE-PAY/ BUY BACK TO 20% OF OUTSTANDING ECB PER YEAR. A PROPOSAL WAS MADE TO T HE CONCERNED MINISTRY IN THE YEAR 1998. IN RESPONSE T O THIS PROPOSAL OF BUY BACK OF ECB A SHOW CAUSE WAS ISSUED BY THE MINISTRY OF FINANCE ON 12/4/99. AFTER PROLO NGED CORRESPONDENCE BETWEEN THE APPELLANT COMPANY AND TH E MINISTRY THERE WAS A PROPOSAL FROM DY.DIRECTOR ECB FOR WITHDRAWAL OF TAX EXEMPTION GRANTED U/S.10(15)(IV)( F). 2046 2057 2058 AND 2059/MUM/2008 (ASSESSMENT YEAR: 2002-03) 5167 5168 5193 5174 5195 AND 5196/MUM/2010 (ASSESSMENT YEAR: 2004-05) 25 THE MAIN OBJECTION OF THE APPELLANT IN THIS REGARD IS THAT THE CONCERNED AUTHORITIES HAVE ARBITRARILY DECIDED TO WITHDRAW THE EXEMPTION THOUGH THERE WAS NO WITHDRAW AL AS FAR AS THE APPROVAL OF LOAN AND AGREEMENT WAS CONCERNED. THE BASIC OBJECTION OF THE APPELLANT COMPANY IS THAT THE APPROVAL ORIGINALLY GRANTED IN THE YEAR 1997 REMAINED INTACT AND THE SAME WAS NOT REJE CTED OR WITHDRAWN HOWEVER THE DY.DIRECTOR (ECB) HAD DECIDED TO WITHDRAW THE EXEMPTION. THE CONSEQUENCE OF THE SAID WITHDRAWAL WAS THAT THE ASSESSEE COMPANY WANTED TO REMIT INTEREST TO A FOREIGN BANK ALREADY MENTIONED ABOVE WITHOUT DEDUCTION OF TAX AT SOURCE . THAT APPLICATION WAS REJECTED BY THE IMPUGNED ORDER U/S.195(2) DATED 13/2/02 AND IT WAS DIRECTED TO DED UCT TAX @ 20%. THE PERTINENT QUESTION WHICH IS TO BE ANSWERED IS WHETHER IT WAS JUSTIFIABLE ON THE PART OF THE DY.DIRECTOR (ECB) TO CHANGE THE RULES IN MIDWAY WHE N THE ENTIRE SCHEME WAS NEAR TO ITS COMPLETION AND TH E APPELLANT COMPANY HAD SOUGHT PERMISSION OF PRE- PAYMENT. THE PLEA BEFORE US IS THAT ONCE THE GOVERNMENT HAD GRANTED THE APPROVAL AND THERE WAS N O CHANGE IN THE CONDITIONS PRESCRIBED THEN IT IS FUNC TOUS OFFICIO. IT WAS PLEADED THAT ONCE A LOAN AGREEMENT WAS APPROVED THEM IT WAS OBLIGATORY IN LAW TO GRANT EXEMPTION TO SUCH INTEREST WHICH BECAME PAYABLE AS A RESULT OF A LOAN AGREEMENT. IT IS ALSO STRESSED BE FORE US THAT NOT ONLY THE EXEMPTION WAS WITHDRAWN BUT IN TH E MID WAY A CONDITION OF END USE OF ECB PROCEEDS WAS ARBITRARILY AND ILLOGICALLY IMPOSED. ARGUMENTS IN THIS REGARD WAS THAT THERE WAS NO SUCH CONDITION OF SPEC IFIC END USE OF ECB PROCEEDS IN THE PROVISIONS OF THE ST ATUTE. AS THERE WAS NO SUCH CONDITION LAID DOWN IN THE STA TUTE ITSELF THEN A RULE OR ANY SUCH DIRECTION SHOULD NO T BE IMPOSED WHICH HAPPENED TO BE IN CONTRADICTION OF TH E MAIN GOVERNING SECTION IN THIS REGARD SEVERAL CASE LAWS WERE CITED. THE PROVISION OF THE STATUTE PROVIDES IN AN UNAMBIGUOUS TERMS TO GRANT EXEMPTION IN RESPECT OF INTEREST PAYABLE TO AN INTERNATIONAL INVESTOR WHO H AS LENT MONEY TO INDUSTRIAL UNDERTAKING IN INDIA UNDER A LO AN AGREEMENT AS APPROVED BY THE CENTRAL GOVERNMENT. T HE COUNSEL FROM THE SIDE OF THE APPELLANT HAS EMPHASIZ ED THE PHASE HAVING REGARD TO THE NEED FOR INDUSTRIAL DEVELOPMENT IN INDIA USED IN THE SAID PROVISION. THE GOVERNMENT OF INDIA HAS PROPERLY REGARDED THE NEED FOR INDUSTRIAL DEVELOPMENT ONLY THEREAFTER ISSUED THE NOTIFICATION AND FLOATED THIS SCHEME OF ECB. THE 2046 2057 2058 AND 2059/MUM/2008 (ASSESSMENT YEAR: 2002-03) 5167 5168 5193 5174 5195 AND 5196/MUM/2010 (ASSESSMENT YEAR: 2004-05) 26 ARGUMENTS HAVE FURTHER BEEN ADVANCED THAT WHENEVER OR WHEREVER THE LEGISLATION DECIDES TO ASCERTAIN THE U SAGE OF MONEY THE SUITABLE LANGUAGE IS USED IN THE BODY OF THE STATUTE ITSELF. FOR EXAMPLE SECTION 10(15)(IV)(C) HAS MENTIONED THE END USED OF MONEY BORROWED AND SPECIFICALLY DIRECTED TO BE IN RESPECT OF THE PURC HASE OUTSIDE INDIA OR RAW MATERIAL OR CAPITAL PLANT AND MACHINERY. SO THE END USE IN THE SAID SECTION IS CATEGORICALLY SPECIFIED. FEW MORE SECTIONS HAVE AL SO BEEN QUOTED IN SUPPORT OF THIS ARGUMENT THEREIN AL SO THE PHRASE WAS DISTINCTLY USED. ANOTHER EXAMPLE CITED OF THE PHRASEOLOGY USED IN SECTION 10(15) (IV) (E) WHEREIN THE LANGUAGE USED IS WHERE THE MONEYS ARE BORROWED EITHER FOR THE PURPOSE OF ADVANCING LOAN TO INDUSTR IAL UNDERTAKINGS IN INDIA FOR PURCHASE OUTSIDE INDIA OR RAW MATERIAL OR CAPITAL PLANT AND FOR THE PURPOSE OF IM PORTING ANY GOODS. SO THE SECTION CLEARLY LAID DOWN THE PURPOSE OF UTILIZATION OF MONIES BORROWED. THUS TH E ARGUMENTS BEFORE US IS THAT THE PURPOSE OF UTILIZAT ION OF ECB IS MISSING IN THE STATUTE THEREFORE IMPOSITIO N OF SUCH CONDITION THROUGH A LETTER BY DY. DIRECTOR (EC B) WAS ILLEGAL AND AGAINST THE INTENTION OF THE LEGISL ATURE. 19. WE HAVE EXAMINED THE SEVERAL CONNECTED PROVISIONS REFERRED SUPRA AND ALSO THE CASE LAWS IN THIS REGARD AND ARRIVED AT THE CONCLUSION THAT THE REVEN UE AUTHORITIES HAVE TO ACT UPON IN THE LIGHT OF THE ST ATUTE AND THE PROVISIONS OF THE ACT AND NOT EMPOWERED TO EXERCISE DISCRETION BY MAKING THE RULES OR NOTIFICA TION / ORDER WHICH DEROGATE OR DEVIATE FROM THE PROVISIONS OF THE STATUTE. IT IS A CARDINAL PRINCIPLE AS MADE B Y SEVERAL HONBLE COURTS THAT IT IS THE MAIN STATUTE WHICH WI LL GOVERN THE RULES PROVIDED UNDER AN ACT AND NOT VICE VERSA. AS FAR AS THE SECTION NOW FOR OUR CONSIDERA TION IS CONCERNED IT IS AMPLY CLEAR THAT NO CRITERIA HAS BE EN LAID DOWN FOR THE END USE OF THE MONEY BORROWED. THE TE RM USED IN THAT SECTION IS HAVING REGARD TO THE NEED FOR INDUSTRIAL DEVELOPMENT IN INDIA IN CONTRAST TO TH E PHRASE USED IN OTHER SECTION WHEREIN THE UTILIZATION AS WE LL AS THE PURPOSE IS MENTIONED AND ALSO DIRECTED THE END USE OF THE MONIES BORROWED. SO WE CAN SAFELY STATE TH AT BY IMPOSING A CONDITION BY DY. DIRECTOR (ECB) DURING T HE PROGRESS OF THE SCHEME WAS LIKE CHANGING THE RULES OF THE GAME IN MID WAY AND THE CHANGE OF THE RULE WAS IN RESPECT OF A GAME ALREADY PLAYED TO ALTER ITS OUTCO ME. A 2046 2057 2058 AND 2059/MUM/2008 (ASSESSMENT YEAR: 2002-03) 5167 5168 5193 5174 5195 AND 5196/MUM/2010 (ASSESSMENT YEAR: 2004-05) 27 RETROSPECTIVE OR EX-POST FACTO CHANGE IN SUCH A MAN NER IS AN ARBITRARY APPROACH HAVING NO LEGAL SANCTITY. 20. NEVERTHELESS ON MERITS AS WELL IT WAS ARGUED T HAT THE FUNDS WERE RIGHTLY UTILIZED AS PRESCRIBED UNDER THE SCHEME. WHILE DISCUSSING THE ARGUMENTS OF LD. A.R IN ABOVE PARAS WE HAVE NOTICED THAT AN EXPLANATION WAS OFFERED ABOUT THE UTILIZATION OF ECB. IN THESE PAR AS WE HAVE NOTED THAT LD. A.R HAS REFERRED CERTAIN LETTER S ADDRESSED TO THE DY. DIRECTOR (ECB) GIVING DETAILS OF THE UTILIZATION OF ECB. FOR THE SAME OF BREVITY THERE IS NO NEED TO REITERATE AGAIN THE SUBMISSIONS IN THIS REG ARD. ON PAGE-40 OF THE COMPILATION THERE IS A LETTER DAT ED 26/11/96 ISSUED BY MINISTRY OF FINANCE SEEKING DETA ILS OF UTILIZATION OF ECB PROCEEDS AND THEREIN PARA (II) W AS SPECIFICALLY MENTIONED VERBATIM REPRODUCED HEREIN ABOVE THROUGH WHICH IT WAS INDICATIVE THAT THE AUTHORITIES WERE AWARE ABOUT THE UTILIZATION OF ECB BY ADOPTING TWO MODES I.E FUNDING THROUGH FOREIGN CURR ENCY AND ALSO UTILIZATION OF OWN RESOURCES. IN PARA (I) OF THE SAID LETTER DATED 26/11/96 THE DY. DIRECTOR (ECB) H AS INDICATED THE UTILIZATION OF FOREIGN CURRENCY EXPEN DITURE. LD. A.R HAS INFORMED THAT DIRECTOR (ECB) HAS MADE I T CLEAR THAT THE FOREIGN CURRENCY EXPENDITURE INCURRE D AFTER THE DATE OF APPLICATION BUT BEFORE THE DATE OF BORR OWING WAS CONSIDERED AS ELIGIBLE EXPENDITURE FOR UTILIZAT ION OF ECB. THE SUBSEQUENT PARA ALSO APPROVED AS PER LD. A.R THE EXPENDITURE INCURRED ON ITEM FOR WHICH ECB WAS PROPOSED WHICH HAD BEEN MADE FROM THE APPELLANTS O WN RESOURCES INCURRED UPTO 22/11/95. SO IT WAS ARGUED THAT IT WAS VERY MUCH WITHIN THE KNOWLEDGE OF THE CONCER NED AUTHORITY ABOUT THE FUNGIBILITY OF FUNDS. THE SAID MIXED METHOD OF UTILIZATION OF FUNDS WAS IN A WAY ACCEPTE D BY THE MINISTRY IN THE PAST. AS FAR AS THE CONCEPT OF FUNGIBILITY OF FUNDS IS CONCERNED THIS IS NOT A NEW CONCEPT AND IT IS APPROVED BY SEVERAL JUDICIAL AUTH ORITIES. WE HAVE PERSUED THE PRECEDENTS CITED IN THIS REGARD IN THE LIGHT OF THE PREVAILING CIRCUMSTANCES OF THE AP PEAL IN HAND. IN ONE OF THE CASE OF WOOLCOMBERS OF INDIA L TD 134 ITR 219 (CAL) THE CONCEPT OF FUNGIBILITY WAS CONSIDERED AND IT WAS HELD THAT THE PROFITS WERE SU FFICIENT TO MEET THE ADVANCE TAX LIABILITY AS THE PROFITS WE RE DEPOSITED IN THE OVERDRAFT ACCOUNT SO THE TAXES WE RE NOT PAID OUT OF OVERDRAFT BUT OUT OF THE PROFITS OF THE RELEVANT YEAR. AN ANOTHER CASE OF HONBLE SUPREME COURT HA S ALSO BEEN CITED DECIDED IN THE CASE OF J.B. BODA & CO. 2046 2057 2058 AND 2059/MUM/2008 (ASSESSMENT YEAR: 2002-03) 5167 5168 5193 5174 5195 AND 5196/MUM/2010 (ASSESSMENT YEAR: 2004-05) 28 2323 ITR 271 WHEREIN THEIR LORDSHIP HAVE EXPRESSED THAT A TWO WAY TRAFFIC IS UNNECESSARY. TO INSIST ON A FORMAL REMITTANCE FIRST AND THEREAFTER TO RECEIVE T HE COMMISSION FROM THE FOREIGN REINSURER WILL BE AN E MPTY FORMALITY AND A MEANINGLESS RITUAL ON THE FACTS OF THIS CASE.. IN THAT CASE THE ASSESSEE WAS A REINSURANC E COMPANY. THE GROSS PREMIUM WAS PAYABLE IN FOREIGN EXCHANGE AND THE ASSESSEE RETAINED THE COMMISSION A ND THEN REMITTED US DOLLARS EQUAL TO PREMIUM. THE BRO KER CLAIMED THAT THE BROKERAGE RETAINED WAS CONVERTIBLE FOREIGN EXCHANGE AND THE MERE FACT THAT IT WAS DESIGNATED IN RUPEES WOULD NOT DETRACT FROM THE POS ITION THAT IT WAS IN EFFECT FOREIGN EXCHANGE. IT WAS CON TENDED THAT THE ASSESSEE INSTEAD OF REMITTING THE ENTIRE A MOUNT TO THE FOREIGN REINSURERS AND THEN RECEIVING REMITT ANCE IN FOREIGN CURRENCY FROM THE SAID REINSURERS THE COMMI SSION DUE TO IT ENTERED INTO AN AGREEMENT WITH THE FOREI GN REINSURERS THAT WHILE REMITTING THE REINSURANCE PR EMIUM THE ASSESSEE WOULD RETAIN THE FEE DUE TO IT FOR THE TECHNICAL SERVICES RENDERED. THE SUPREME COURT UPH ELD THE CONTENTION OF THE ASSESSEE AND HELD THAT TWO WA Y TRAFFIC WAS UNNECESSARY. TO INSIST ON A FORMAL REMITTANCE TO THE FOREIGN REINSURERS FIRST AND THER EAFTER TO RECEIVE THE COMMISSION FROM THE FOREIGN REINSURER W OULD BE AN EMPTY FORMALITY AND A MEANINGLESS RITUAL. TH E STATEMENT OF REMITTANCE HAVING BEEN FILED WITH THE RESERVE BANK OF INDIA IN EFFECT THE INCOME WAS REC EIVED IN CONVERTIBLE FOREIGN EXCHANGE IN A LAWFUL AND PERMISSIBLE MANNER. 21. ON RELYING UPON THESE DECISIONS THE ALTERNATE PLEA AS MADE BEFORE US IS THAT EVEN ASSUMING THAT E ND USER RESTRICTION COULD HAVE BEEN IMPOSED BY THE CEN TRAL GOVERNMENT EX-POST FACTO EVEN THEN THE APPELLANT COMPANY HAD IN FACT INVESTED OR UTILIZED FAR MORE F OREIGN CURRENCY IN US DOLLAR FOR CAPITAL GOODS AND SERVICE S IN RESPECT OF THE JAMNAGAR PETRO CHEMICAL COMPLEX. TO ESTABLISH THE TOTAL UTILIZATION OF FUNDS CERTAIN FA CTS AND FIGURES IN THE FORM OF CHARTS HAVE BEEN PLACED BEFO RE THE CONCERNED AUTHORITIES AND IT WAS ARGUED THAT THE FI GURES SHOWN WERE NOT IN DISPUTE. IT IS ALSO ARGUED THAT THE UNDISPUTED AND UNCHALLENGED FACTUAL POSITION WAS TH AT THE TOTAL UTILIZATION OF FUNDS WAS MUCH MORE THE EC B AVAILED UNDER THE SCHEME. LET IT REMAIN UNDISPUTED AND WITHOUT ENTERING INTO DISPUTE WHICH IS MORE IN THE NATURE OF FINDINGS OF FACT WE HAVE TO CONCENTRATE ON THE C ORE 2046 2057 2058 AND 2059/MUM/2008 (ASSESSMENT YEAR: 2002-03) 5167 5168 5193 5174 5195 AND 5196/MUM/2010 (ASSESSMENT YEAR: 2004-05) 29 ISSUE OF WITHDRAWAL OF EXEMPTION. THE LEGISLATURE HAS GRANTED EXEMPTION TO THE LENDER I.E THE FOREIGN INS TITUTION AND NOT TO THE BORROWER I.E THE APPELLANT COMPANY. IF THERE WAS A MISTAKE FOR ARGUMENTS IF AT ALL THE COMMITTED BY THE BORROWER EVEN THEN THE LENDER CANN OT BE PUNISHED BY WITHDRAWAL OF EXEMPTION. THIS VIEW OF OURS GETS FORTIFIED BY A DECISION OF HONBLE APEX C OURT IN THE CASE OF CIT VS. CHOTATINGRAI TEA ESTATE PVT. LT D. & OTHERS 258 ITR 259. 22. AFTER AN ELOBRATE DISCUSSION MADE HEREIN ABOVE WE DEEM IT PROPER TO SUMMARIZE THE GIST OF THOSE ELONGATED PARAS. FIRST OF ALL WE WANT TO OBSERVE T HAT IF THE BUREAUCRACY OR EXECUTIVE IS ACTING IN AN UNJUST IFIABLE MANNER THEN THE ONLY COURSE LEFT TO A CITIZEN IS TO APPROACH THE JUDICIARY FOR LEGITIMATE REDRESSAL. T HIS IS WHAT EXACTLY HAD BEEN DONE IN THIS APPEAL BY THE APPELLANT COMPANY. AT FIRST THE COMPANY HAD TRIED TO CONVINCE THE AUTHORITIES CONCERNED I.E DY. DIRECTOR (ECB) ABOUT THE UTILITY OF FOREIGN CURRENCY LOAN AL READY APPROVED BUT ON FAILURE KNOCKED THE DOOR OF THE JU DICIARY BY FILING A WRIT TO HONBLE DELHI HIGH COURT. SPEC IAL LEAVE PETITION HAS ALSO BEEN FILED HOWEVER THE HO NBLE APEX COURT VIDE AN ORDER DATED 31/5/02 HAS OBSERVED AS FOLLOWS: BE THAT AS IT MAY SINCE THE ISSUE OF UTILIZATION OR PRE-PAYMENT OF THE ECBS IS NOT BEFORE US WE WILL NOT GO INTO THAT QUESTION IF THE PETITIONERS ARE AGGRIEVED BY ANY SUCH ACTION OF THE RESPONDENTS BY WHICH THEIR UTILIZATION OR PRE-PAYMENT OF THE ECBS ARE ALSO RESTRICTED IT IS OPEN TO THEM TO CHALLENGE THE SAME IN APPROPRIATE PROCEEDINGS IF PERMISSIBLE IN LAW. A MERE DISMISSAL OF SLP DOES NOT MEAN THAT THE JUDGMENT OF A HIGH COURT STANDS AFFIRMED BY THE SUPREME COURT. THE EFFECT OF DISMISSAL IS THAT NO APPEAL WAS PERMITTED AND NOT THAT AN APPEAL AGAINST THE SA ID JUDGMENT WAS DISMISSED BY THE SUPREME COURT AFFIRMI NG THE VIEW OF THE HIGH COURT NOR DOES IT MEAN THAT T HE JUDGMENT OF HIGH COURT HAS BEEN APPROVED BY THE SUPREME COURT ON MERITS AS INDICATED BY THE HONBLE APEX COURT CASE LAWS RELIED UPON ARE J.K. CHARITAB LE 2046 2057 2058 AND 2059/MUM/2008 (ASSESSMENT YEAR: 2002-03) 5167 5168 5193 5174 5195 AND 5196/MUM/2010 (ASSESSMENT YEAR: 2004-05) 30 TRUST VS. WTO 222 ITR 523(ALL) AND CIT (A) VS. QUAL ITY 224 ITR 77 (PAT). BOTH THE HONBLE COURTS HAVE EXPRESSED THAT IT IS OPEN TO THE APPELLANT COMPANY TO CHALLENGE THE SAME IN APPROPRIATE PROCEEDINGS IF PERMISSIBLE IN LAW. FOLLOWING THE VIEW EXPRESSED B Y THEIR LORDSHIP IN THE SAID JUDGMENT THE APPELLANT COMPANY HAS THEREAFTER APPROACHED THE QUASI JUDICIA L AND JUDICIAL AUTHORITIES STEP BY STEP. ALL SUCH AT TEMPTS OF REDRESSAL REMAINED UNSUCCESSFUL SO THE ISSUE HAS NOW REACHED UPTO THE STAGE OF SECOND APPEAL I.E BEFORE US. IN OTHER WORDS AN ORDER U/S. 195(2) WAS PASSED WHI CH WAS CHALLENGED BY INVOKING THE PROVISIONS OF SECTIO N 248 BEFORE THE FIRST APPELLATE AUTHORITY I.E LD. CIT (A ) AND ON REJECTION OF APPEAL THE MATTER WAS CARRIED FURTHER SO THE JURISDICTION OF THE TRIBUNAL DOES LIE TO ADJUDICATE UPON THIS APPEAL. AN ANCILLARY ISSUE OF WITHDRAWAL OF EXEMPTION WAS RAISED AND IT WAS NECESSARY TO FIRST SETTLE THAT ISSUE TO ARRIVE AT A RIGHT CONCLUSION TO GET T HIS APPEAL DECIDED. AS WE HAVE ALREADY OBSERVED THE EXECUTIVE HAS CHANGED THE RULES OF THE SCHEME IN MI D WAY WHICH HAD ALREADY BEEN FOLLOWED AS WELL AS ACTE D UPON AND THE CHANGE WAS SUCH TO ALTER ITS OUTCOME ALTOGETHER. AS WE HAVE OBSERVED SUPRA THE ISSUE OF UTILIZATION OF ECB FUNDS WAS FOR THE FIRST TIME RAI SED WHEN THE ENTIRE SCHEME WAS AT ITS FAG END. ACCORD ING TO THE COMPANY THE TIME HAD COME FOR REPAYMENT OR B UY BACK OF THE OUTSTANDING LOANS. IT WAS A COMMERCIAL DECISION TAKEN BY THE COMPANY IN THE CAPACITY OF A PRUDENT BUSINESSMAN. AT THAT JUNCTURE THE CLOCK CO ULD NOT BE SET INTO REVERSE MOTION. CERTAIN STEPS ALRE ADY TAKEN BY THE APPELLANT COMPANY WHICH WERE WELL WITH IN THE KNOWLEDGE OF THE CONCERNED AUTHORITY COULD NOT BE RETRACTED. AS THE FACTS INDICATES RETROSPECTIVELY THE MODE OF UTILIZATION OF THE FUNDS COULD NOT BE ALTER ED. RATHER THE SANCTIONING AUTHORITY HAS NOT CHECKED AT THAT VERY POINT OF TIME WHEN ACCORDING TO THEM IF AT AL L THERE WAS MIS-UTILIZATION OF ECB BORROWINGS. ON THE CONT RARY THE CLAIM OF THE ASSESSEE WAS THAT THE UTILIZATION WAS IN ACCORDANCE WITH THE SCHEME THOUGH BY THE PROCESS OF FUNGIBLE FUNDS THE OBLIGATIONS WERE SATISFIED AND THE CONDITIONS WERE FULFILLED. SO ACCORDING TO US AT THAT STAGE IT WAS CATASTROPHIC TO WITHDRAW THE EXEMPTIO N ALREADY GRANTED U/S.10(15)(IV)(F). DUE TO THE WITH DRAWAL OF THE EXEMPTION THE IMPUGNED ORDER U/S.195(2) NOW UNDER DISPUTE WAS PASSED DIRECTING TO DEDUCT WITH HOLDING TAX @ 20%. TO ARRIVE AT A LOGICAL CONCLUSI ON 2046 2057 2058 AND 2059/MUM/2008 (ASSESSMENT YEAR: 2002-03) 5167 5168 5193 5174 5195 AND 5196/MUM/2010 (ASSESSMENT YEAR: 2004-05) 31 FIRST WE HOLD THAT CONSIDERING THE TOTALITY OF THE FACTS CIRCUMSTANCES CONDITIONS OF THE SCHEME EVIDENCES OF UTILITY OF THE FUNDS AND THE LEGAL MATRIX OF THE CA SE THE WITHDRAWAL OF EXEMPTION WAS UNWARRANTED. CONSEQUEN T THERE UPON WE ALSO HOLD THAT THE APPELLANT COMPANY WAS NOT LIABLE TO DEDUCT WITHHOLDING TAX @ 20% IN RESPE CT OF THE INTEREST PAYMENT OF US $ 1 05 902 TO M/S.DEUTSC HE BANK AG. WITH THE RESULT WE HEREBY QUASH THE OR DER PASSED U/S.195(2) OF IT ACT AS WELL AS REVERSE THE FINDINGS OF LD. CIT(A). WE ORDER ACCORDINGLY. HERE IT IS NECESSARY TO MENTION THAT IN PARAGRAPH 2 2 OF THE ABOVE REFERRED ORDER THE TRIBUNAL HAS MENTIONED TH E DATE OF ORDER OF THE HONBLE APEX COURT OF DISMISSAL OF SPECIAL LEAVE PETITION AS 31.5.2002 WHEREAS AS PER ORDER OF HONBLE SUPREME COURT THE DATE IS 25.2.2003. 10. WE FURTHER FIND THAT THE ABOVE DECISION OF THE TRIBUNAL HAS BEEN CONSISTENTLY FOLLOWED BY THE CO-ORDINATE BENCHES OF THE TRIBUNAL IN (I) ASSISTANT DIRECTOR OF INCO ME TAX (IT) 3(1) V/S RELIANCE INDUSTRIES LTD IN ITA NO.901/MUM/ 2008 (AY-2003-04) DATED 29.9.2009; (II) ASSISTANT DIRECT OR OF INCOME TAX (IT) 2(2) V/S RELIANCE INDUSTRIES LTD I N ITA NOS.5407 & 5408/MUM/2007 (AY-2003-04) DATED 15.4.2 009 AND III) RELIANCE INDUSTRIES LTD V/S DY. DIRECTOR O F INCOME TAX (IT) 2(1) IN ITA NOS.5966 5967 & 5968/MUM/2002 & ITA NO.4118/2003 DATED 23.3.2006. WE FURTHER FIND THAT THE REVENUE HAS CHALLENGED THE ABOVE ORDERS OF THE TRI BUNAL BEFORE THE HONBLE JURISDICTIONAL HIGH COURT AND T HE HIGH 2046 2057 2058 AND 2059/MUM/2008 (ASSESSMENT YEAR: 2002-03) 5167 5168 5193 5174 5195 AND 5196/MUM/2010 (ASSESSMENT YEAR: 2004-05) 32 COURT HAS ALSO DISMISSED THE REVENUES NOTICE OF MO TION VIDE DECISION DATED 20.6.2011. 11. THE HONBLE SUPREME COURT IN RADHASOAMI SATSAN G V/S CIT (1992) 193 ITR 321(SC) HAS HELD (HEAD NOTE PAGE 322): STRICTLY SPEAKING RES JUDICATA DOES NOT APPLY TO INCOME- TAX PROCEEDINGS. THOUGH EACH ASSESSMENT YEAR BEING A UNIT WHAT WAS DECIDED IN ONE YEAR MIGHT NOT APPLY IN THE FOLLOWING YEAR; WHERE A FUNDAMENTAL ASPECT PERMEATI NG THROUGH THE DIFFERENT ASSESSMENT YEARS HAS BEEN FOU ND AS A FACT ONE WAY OR THE OTHER AND PARTIES HAVE ALL OWED THAT POSITION TO BE SUSTAINED BY NOT CHALLENGING TH E ORDER IT WOULD NOT BE AT ALL APPROPRIATE TO ALLOW THE POSITION TO BE CHANGED IN A SUBSEQUENT YEAR. 12. FOR THE REASONS AS DISCUSSED ABOVE AND IN THE A BSENCE OF ANY CONTRARY DECISION BROUGHT ON RECORD BY THE REVENUE AND KEEPING IN VIEW THE CONSISTENCY WE RESPECTFULL Y FOLLOWING THE DECISION OF THE TRIBUNAL AND HONBLE SUPREME COURT (SUPRA) UPHOLD THE ORDER OF THE LD. CIT(A) IN ALLOWING THE APPEALS OF THE ASSESSEE AND REJECT THE GROUNDS TAKEN BY THE REVENUE IN ALL THESE APPEALS. 2046 2057 2058 AND 2059/MUM/2008 (ASSESSMENT YEAR: 2002-03) 5167 5168 5193 5174 5195 AND 5196/MUM/2010 (ASSESSMENT YEAR: 2004-05) 33 13. IN THE RESULT THE REVENUES APPEALS STAND DISM ISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD SEPTEMBER 2011. SD SD (R.K.PANDA) (D.K.AGARWAL) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI DATED 23RD SEPTEMBER 2011 SRL: COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT CONCERNED 4. CIT(A) CONCERNED 5. DR CONCERNED BENCH 6. GUARD FILE. TRUE COPY BY ORDER ASSTT. REGISTRAR ITAT MUMBAI